Banks may fail to reach net interest margin target
By Neelima Shankar
Mar 25, 2010
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Nationalized banks of the country might fall back in meeting the net interest margin (NIM) target set by the Government for the year 2010-11. Many of the banks are expected to fail in meeting the 3% NIM target because of the policy tightening measures adopted by the RBI, analysts have suggested.

NIM refers to the difference between the amount of interest received by banks from loan disbursements and the amount of interest given to depositors for their depositors.

A study by Centrum Broking Agency's study of seven top nationalized banks of the country says that five of them are expected to fail in meeting the target of 3% NIM by 31st march 2011. The banks under its lens are State Bank of India, Bank of India, Union Bank of India, Indian Overseas Bank and Bank of Baroda.

BofA Merrill Lynch has come up with a much more staggering result saying that seven out of nine banks under its study will fail to meet the 3% NIM even by March 2011. The list includes Canara Bank, Corporation Bank and Oriental Bank of Commerce apart from the above said names.

It is said that only Indian Bank and Punjab National Bank will be able to meet the target.

The recent hike in CRR has affected the margins of banks because with increased CRR the banks started attracting more deposits into the kitty with attractive interest rates.

"If banks increase deposit rates, their cost of funds go up, thus affecting margins," said Anand Dama, banking analyst, Networth Broking.

Lending rates are however not expected to rise that much as compared to deposit rates. "Lending rates are expected to go up by about 75 basis points in FY11," said Abizer Diwanji, head (financial services) KPMG. "Any hike will get compensated with an increase in the cost of deposits. As a result the rise in NIM will be meager," he added.


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